Acquiring Shares in Closed Korean Corporations in Exchange for Products at Discount: Don’t Forget the Due Diligence in Korea

I just received a phone call from a prospective client with a wonderful product that has been offered a sweetheart deal.  Whenever I hear that someone has received a no risk or sweetheart deal in Korea, a red flag immediately goes up in my head and I immediately request the client to let me do a couple of weeks of due diligence.

One of the many, ubiquitous, sweetheart deals is ownership of shares in company in exchange for some benefit from the foreign partner.  Too often, the Korean company is a shell.  The shell is broke with liabilities that far exceed assets.  The shell, however, is paying its management handsomely through a variety of interested transactions and access to the expense account.  In one case I regrettably saw, the company was under investigation of the prosecution.

Thus, your sweetheart deal may lead to unexpected liabilities, the deterioration of your brand image, the eyes of investigative bodies and additional legal fees and lost future opportunities.

Do yourself a favor, engage a professional to engage in a little due diligence.  I wrote many articles about due diligence in Korea.  A few are below.

• Korea Due Diligence: Not so Different from China
• The Top 10 Things to Do Before Manufacturing in Korea
• Korea Stock Purchase Checklist for SMEs 
• Doing Business in Asia: Due Diligence, Agreements, Attorneys and Streetsmarts
• Listen to My Mother: JVs in Asia 
• Korea Joint Ventures: The Bare Essentials